The Rural Voice, 2006-01, Page 43Agri law
Power blackout - do you have insurance?
Paul G.
Vogel, a
partner in the
London law
firm of Cohen
Highley LLP.
By Paul Vogel
Following the province -wide
power failure in August, 2003,
widespread power outage continues
to be of concern in Southern Ontario.
For farmers, agribusinesses and other
industries who maintain inventories
of perishable products which require
refrigeration, losses which may be
incurred as a result of extended
power outages may be substantial.
Can these businesses claim recovery
of such losses from their insurance
companies?
The Ontario Superior Court of
Justice recently considered an
insurance claim in excess of $1
million by the owner of a chain of
grocery stores for the loss of its
perishable food inventory resulting
from the August, 2003 power outage.
The insurance policy at issue
indemnified the insured for any
property lost or damaged by the
"perils insured" but "subject to the
terms and conditions" of the policy.
Insured perils included "all risks of
direct physical loss or damage caused
directly or indirectly by ... changes
of temperature". However, the
exclusion clause expressly provided
that "this exclusion does not apply to
loss or damage caused directly by a
peril otherwise insured and not
otherwise excluded."
In determining that this insurance
coverage extended to indemnify the
insured for the losses claimed, the
court was required to consider
whether the loss or damage to the
perishable food inventory was
"caused directly" by an ensured peril
so as to render inapplicable the
exclusion of loss or damage caused
by changes of temperature. The court
stated:
"Significant argument was focused
on what direct means. This
determination is fundamental to
the coverage questions. If the
losses are determined
indirect/consequential ones, the
court's involvement is complete.
Resort need not be had to the
exclusions. If however, the losses
are deemed direct, coverage will
extend unless there are exclusions
that apply".
The court referred to a number of
previous court decisions which have
established that, for the purpose of
determining insurance coverage, "the
cause of the loss or damage covered
by the contracts must be a `proximate
cause—, or "the effective or dominant
cause of the occurrence". Included in
these prior cases was a successful
insurance claim by the owner of a
chicken farm for the value of
chickens which were smothered and
died following a power interruption
which shut down the ventilation
system to the chicken barn. The court
concluded:
"In this case, the province -wide
blackout caused the loss of power
at (the supermarkets). This loss of
power led to the inevitable result
of a loss in refrigeration, which in
turn led to the spoilage of food.
Such inevitability leads to the
conclusion that the blackout was
the efficient or actual cause of the
spoilage of food. ... The court
finds that the property losses
suffered by the applicant are
directly — proximately — caused by
the blackout and would be covered
by the broad terms of the policy.
That said, coverage may still be
legally denied if the event falls
under an exception within the
policy".
With respect to the change of
temperature exclusion, the court
similarly concluded that, since the
loss or damage was caused "directly"
by an insured peril, the change of
temperature exclusion did not apply.
For businesses facing substantial
risk of damage to perishable food
inventories from future power
outages, availability of applicable
insurance coverage is a significant
concern. Since responding coverage
will depend upon the wording of
specific insurance contracts, these
businesses should carefully review
their existing coverage to ensure they
have the necessary protection.°
Agrilaw is a syndicated column
produced by the full service London
law firm of Cohen Highley LLP. Paul
G. Vogel, a partner in the firm,
practices in the area of commercial
litigation and environmental law.
Agrilaw is intended to provide
information to farm operators on
topics of interest and importance.
The opinions expressed are not
intended as legal advice. Before
acting on any information contained
in this column, readers should obtain
legal advice with respect to their own
particular circumstances and
geographical area.
JANUARY 2006 39